Compliance Center: NCUA Outlines Plans for Adding ‘S’ to Credit Union CAMEL Ratings
June 28, 2016
June 28, 2016
The National Credit Union Association’s (NCUA) Office of Examination and Insurance recommended the NCUA Board consider releasing a proposal in the coming months to incorporate an “S” for “sensitivity to market risk” into the current CAMEL rating system for credit unions.
The CAMEL rating system, which evaluates a credit union’s overall condition, measures five critical elements: capital adequacy, asset quality, management, earnings and liquidity. Overall CAMEL scores range from 1 (sound in every respect) to 5 (extremely unsafe and unsound).
Presently, NCUA assesses interest rate risk as part of the liquidity rating. Federal banking supervisors, however, already include an “S” in the rating system, as do 16 state credit union regulators (including Washington State). Five additional state credit union regulators are working to adopt this approach.
NCUA considered the addition of the “S” element when bank supervisors first adopted it, but opted not to do so based on the relative lack of complexity in credit unions’ balance sheets at that time. However, examination and insurance staff believe the changing size and complexity of the credit union system warrants its adoption now.
“This idea has been discussed for several years, and the time is ripe to make a formal proposal,” NCUA Board Chairman Rick Metsger said. “If we do this, it will require NCUA to reprogram several internal systems and make revisions to supervision programs and existing documents, but the benefits appear to outweigh those costs.”
Examination and insurance staff told the Board that the benefits of adding the risk sensitivity element include greater clarity, accuracy and transparency in how interest rate risk is assessed. Staff recommended the agency draft and issue a proposal for public notice and comment. The comment and review process, subsequent program changes and implementation would take several years.
The agency’s Office of the Inspector General last year also recommended adoption of the sensitivity element, and the agency’s Executive Director agreed, making a commitment to present a proposed regulation change to the Board by the end of the third quarter of 2016.
Final implementation could be made by 2018.
Compliance Question of the Week
We received a garnishment for a member. When we called to let him know that we were holding the funds for the garnishment, he told me he was in the process of filing bankruptcy. Can I still honor the garnishment?
Yes. In both Oregon and Washington, the mention of filing bankruptcy has no bearing on the garnishment until a bankruptcy has actually been filed. If the member is simply talking with an attorney, the credit union will need to honor the garnishment order. The credit union is not protected from liability if it does not comply with the garnishment order.
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Questions? Contact the Compliance Hotline: 1.800.546.4465, firstname.lastname@example.org.